The US economy has slowed to stall speed. A few lonely forecasters fear that
America has already fallen back into recession, replicating the terrible
double-dip of 1937.

The Philly Fed’s manufacturing index dropped suddenly to minus 5.8 in May. The US Conference Board’s index of leading indicators fell in April. Job creation has slipped from 250,000 a month to nearer 130,000 in March and April.

The Economic Cycle Research Institute (ECRI) says post-War personal income growth in the US has never been this weak for three months in a row without triggering a recession. It has happened ten out of ten times.

It is this fresh menace - combined with China’s failure to calibrate its heralded soft-landing - that poses the real danger to southern Europe’s arc of depression over the next year. Greece is just a poignant detail.

America’s official data has not picked up any inflection point yet. We may be repeating the summer of 2008 when Washington mistakenly reported brisk growth and Fed rhetoric turned hawkish, setting off the Fannie/Freddie, Lehman, AIG disasters. We now know that the figures were wildly wrong. The economy was already in slump.

Fed chair Ben Bernanke is vigilant this time. Last week’s Fed minutes hinted at fresh stimulus if “the economic recovery lost momentum”. The Fed noted “sizeable risks” as $1 trillion (£633bn) of fiscal cuts kick in automatically at the end of the year.

Mr Bernanke has to bide his time of course. He faces a Congress that confuses zero interest rates with loose money, a common mistake. Greece may give him the excuse he needs.

Ethan Harris from Bank of America says there is a strange nonchalance over America’s coming austerity or “fiscal cliff” as Mr Bernanke calls it. “If the US and European crises interact, and feed on one and another, a recession becomes a real risk. This would be a replay of Japan’s experience of the mid-1990s, when a combination of premature fiscal tightening and the Asian crisis triggered a recession and deflation,” he said.

The stakes are higher this time. It is why leaders of the US, Britain, Japan, and Canada joined the Franco-Italian axis at Camp David over the weekend to rebuke Chancellor Angela Merkel. The whole world has lost patience with Germany’s refusal to face the implications of monetary union. “It’s very important these messages get across, and I would say there is a growing sense of urgency that action needs to be taken,” said David Cameron.

The Euro zone’s fiscal and monetary levers are set on synchronized, mutually reinforcing contraction. The system still has no lender of last resort. The ECB is gelded. This is surreal. It is also extremely irresponsible, and we all know who is to blame.

A global relapse on top of Europe’s self-imposed wasting disease would be the coup de grace for Spain and Portugal, and perhaps Italy. They can weather a Greek ejection from the euro. They cannot defy a volley of macro-economic shocks.

This is not to belittle events in Athens. No Club Med state is safe once the sanctity of monetary union is violated. Yet I doubt that Greece’s ejection would trigger instant contagion or prove to be the final cathartic crisis for Euroland. This is not Lehman on steroids, or Lehman at all. Everybody is prepared. The world’s central banks are standing ready to douse the flames with massive liquidity. Drachma Day might well see a relief rally on global bourses and debt markets.

The greater threat is slow contagion later as it becomes clearer that Greece is not a special case after all. All of southern Europe faces variants of the same cancer: debt-deflation and chronic loss of labour competitiveness against the EMU core. For now, Germany.

The German finance ministry has proposed plans to shore up Greece with EU funds after euro exit, as is fitting. Greece has legal rights as an EU and IMF member. It can expect help to rebuild its banking system from scratch -- as occurred in Iceland -- especially since the EU itself pushed Greece deeper into its death spiral by withdrawing key bank support in 2010 and by misjudging the therapeutic dose of fiscal contraction.

My guess is that EU officials and the IMF will try to stabilize the drachma with a Goldilocks devaluation of 25pc to 30pc at first, enough to restore trade equilibrium without causing mayhem for euro contracts. If the Swiss central bank can hold the franc at €1.20 against the world, the ECB can hold the euro steady against the drachma, should it be ordered to do so by EU ministers under Maastricht Article 109.

What are the EU and the IMF for if they cannot stop one of their own members spiralling into collapse? So assuming that the Greek people elect leaders who are not entirely paranoid, economically illiterate, and abusive, there will be a settlement of sorts. Washington will not lose a NATO member lightly.

Some claim that Greece would have to leave the EU if it returned to the drachma. This is pedantry. It is based on a personal paper by an ECB official, without authority. There is no such treaty requirement, and EU “law” is elastic. Sweden is not a member of the euro. It is in violation of its accession terms, yet Brussels turns a blind eye. If EU leaders wish to keep Greece in the family, they will do so.

Greece may of course hang on inside the euro for a bit longer. Duly petrified, Greek citizens may elect a pro-Memorandum coalition in June after all. Yet it is hard to see how any political constellation deliver austerity cuts for year after year and fire 150,000 public employees, or 23pc of the total. Youth unemployment already 53.8pc. Nothing much is gained by drawing out the agony.

But I digress. The elemental issue for Europe is the asphyxiation of the Latin bloc. As matters now stand, Spain must cut its budget deficit from 8.9pc to 5.3pc of GDP this year in the midst of a depression. The jobless rate is already 24.4pc. Twin property and banking crashes are feeding on each other.

We already have strong hints of what Europe’s response will be. Leaders will agree to a `growth compact’, a reheated version of the Marshall Plan announced at the June 2011 summit that came to nothing. The EU’s labyrinthine bureaucracy will slowly crank up project finance through the European Investment Bank. A drip-drip of stimulus will trickle through later this decade.

None of this will make any material difference. The force of global events will wash over such picayune offerings. The Latin Bloc has a few more months to wrest control of the EU machinery from Germany and force a revolutionary shift in policy. After that it will be too late. A vous Monsieur Hollande. A Lei Signor Monti.